The telecommunications sector continues its shift towards decentralisation, driven by market pressures, technological advancements, and evolving customer expectations. This strategic unbundling is reshaping traditional telecom operators into specialised, agile entities, aligning with the broader economic principle of oscillating between consolidation and disaggregation to optimise value and innovation.
The "Why" Behind Decentralisation:
- Stagnant Core Revenue Streams: Traditional voice and data services face ongoing commoditisation, with average revenue per user (ARPU) under pressure. Telcos are seeking new revenue streams, such as digital services and enterprise solutions, to drive growth.
- Intensified Competition: Digital-native firms, including hyperscalers (e.g., AWS, Google Cloud) and software-driven competitors, continue to challenge telcos in value-added services like cloud, IoT, and cybersecurity.
- Technological Imperatives: The expansion of 6G research, advanced AI integration, quantum communication exploration, and the growth of edge computing require specialised expertise and targeted investments, which are difficult to manage within a monolithic structure.
- Evolving Customer Expectations: Customers demand hyper-personalised, seamless, and sustainable digital experiences, pushing telcos to adopt agile, customer-centric models.
Decentralisation allows telcos to unlock value, sharpen focus, attract specialised capital, and accelerate innovation in a competitive digital landscape.
The Origin: Riding the "Double Helix" of Industry Evolution:
Charles Fine’s "Double Helix" model, from Clockspeed: Winning Industry Control in the Age of Temporary Advantage, remains a foundational lens for understanding this shift. Industries cycle between vertical integration and disaggregation based on the "clockspeed" of technology and market demands. The telecom sector, once dominated by vertically integrated monopolies, is now driven towards specialisation by rapid advancements in 6G, AI, cloud-native architectures, and dynamic customer needs. This disaggregation enables each entity to focus on core competencies, attract tailored investment, and foster innovation.
How Decentralisation Impacts Structure: The Emergence of Specialised "X-Co" Entities
The decentralised telecom model splits traditional operators into distinct entities, each with a clear focus:
Infra Co (Infrastructure Company) Core Business Focus: Owns and operates passive infrastructure (e.g., towers, fibre networks, ducts, data centres), providing wholesale services.
- Strategic Role: The foundational enabler, offering stable, long-term cash flows through high capital expenditure (CapEx) assets.
- Investor Appeal: Attracts long-term institutional investors (e.g., pension or superannuation funds, infrastructure funds) seeking predictable, utility-like returns.
- In 2025: The rise of AI-driven workloads has increased demand for data centres, making InfraCos critical for edge computing and low-latency applications. Many are exploring sustainable energy solutions to meet environmental, social, and governance (ESG) criteria, enhancing investor appeal.
Net Co (Network Company) Core Business Focus: Manages active network layers, including spectrum, radio access networks (RAN), and Network-as-a-Service (NaaS) platforms with open APIs.
- Strategic Role: The intelligent platform layer, enabling network slicing, quality-of-service (QoS) management, and automation.
- Investor Appeal: Appeals to investors interested in next-generation network technologies and digital transformation.
- In 2025: Net Cos are increasingly adopting software-defined networking (SDN) and network function virtualisation (NFV) to support 6G trials and AI-optimised networks. Open RAN adoption is accelerating, reducing dependency on traditional vendors like Nokia or Ericsson.
Serve Co (Service Company) Core Business Focus: Delivers customer-facing services (e.g., broadband, mobile, IoT) and digital offerings (e.g., cloud, cybersecurity, managed IT).
- Strategic Role: The customer-centric engine, driving revenue through brand loyalty and innovative service bundles.
- Investor Appeal: Attracts growth equity and private equity seeking recurring revenue and market share.
- In 2025, Serve Cos are expanding into enterprise-focused solutions, such as private 5G/6G networks and AI-driven analytics platforms, to cater to industries like manufacturing and healthcare. Customer experience platforms now leverage generative AI for hyper-personalisation.
Tech Co (Technology Company) Core Business Focus: Drives R&D in AI, machine learning, cloud-native applications, API marketplaces, and data monetisation.
- Strategic Role: The innovation engine, creating new revenue streams and enhancing ecosystem capabilities.Investor
- Appeal: Attracts venture capital and tech-focused investors seeking high-growth opportunities.
- In 2025: Tech Cos are pioneering AI-driven network optimisation, quantum encryption, and Web3 applications (e.g., blockchain-based identity solutions). Partnerships with hyperscalers and startups are accelerating innovation cycles.
Detailed Comparison of Each Decentralised Model ("Co")
Benefits of Decentralisation
The decentralisation model continues to deliver significant benefits:
Financial Benefits:
- Higher Valuations: Infra Cos achieve EBITDA multiples of 15-25x, compared to 6-8x for integrated telcos, unlocking 30-50% valuation uplifts.
- Cheaper Capital: Infra Cos secure low-cost debt, while Tech Cos attract high-growth equity.Improved
- Capital Allocation: Targeted investments enhance ROI, with CapEx efficiency improving by 20-30% in some cases.
Operational Benefits:
- Focus & Agility: Specialised entities reduce bureaucracy, enabling faster decision-making.
- Efficiency: Streamlined operations improve cost structures by 10-15%.
- Talent Specialisation: Attracts niche expertise, enhancing performance.
Regulatory Benefits:
- Relief & Clarity: Open-access Infra Cos simplify compliance with wholesale regulations.
- Compliance Simplification: Specialised entities streamline regulatory adherence.
Innovation Benefits:
- Accelerated Innovation: Tech Cos drive AI, 6G, and quantum advancements, competing with digital natives.
- Asset Monetisation: NaaS and edge computing create new revenue streams, with some Tech Cos reporting 20%+ growth in digital revenues.
- Ecosystem Enablement: Partnerships with hyperscalers and startups foster vibrant ecosystems.
Global Impact: Companies Embracing Decentralisation
Europe:
- Vodafone: Vantage Towers has expanded its footprint, acquiring additional sites in Eastern Europe and securing green energy partnerships to meet ESG goals. Vodafone is now exploring a Fibre Co spin-off in Spain and Italy, aiming to raise £5-7 Bn by 2026.
- Telefónica: Post-Telxius tower sale, Telefónica has launched a FibreCo in Spain, targeting 5 Mn additional FTTH premises by 2027, with co-investment from infrastructure funds.
- Deutsche Telekom: GD Towers has grown its tenancy ratio to 1.8, generating €1.2 Bn in annual revenue. DT is investing heavily in AI-driven network automation and enterprise 5G solutions.
APAC:
- Indosat Ooredoo Hutchison (Indonesia): Has divested additional tower assets in 2024, raising $500 Mn to fund 6G trials and rural 5G expansion.
- Axiata (Malaysia): edotco Group secured $300 Mn in new funding in 2025, expanding into Vietnam and Bangladesh, with a focus on edge data centres.
Australia & New Zealand:
- Telstra (Australia): Amplitel’s tenancy ratio reached 2.0 in 2025, generating $400 Mn in annual lease revenue. Telstra is exploring a FibreCo model to fund rural broadband expansion. Telstra hasn't disaggregated Tech Co and Net Co from Serve Co; however, Muru-D is their Innovation hub.
- Optus (Singtel-owned, Australia): Optus has embraced decentralisation through its network-sharing agreement with TPG Telecom (2024), expanding coverage to 2,444 regional sites, including 5G, while reducing Capex by A$575-675 Mn. This aligns with the Net Co model, leveraging shared infrastructure for efficiency. Optus retains its Serve Co focus, enhancing customer-facing services like private 5G for enterprises.
- Spark (New Zealand): Connexa secured additional funding in 2024, enabling 5G tower densification. Spark’s focus on AI-driven customer analytics has boosted ARPU by 8%.
United States:
- AT&T & Verizon: Both continue to monetise fibre assets, with AT&T’s Fibre Co valued at $15 Bn in a 2024 joint venture. Investments in private 5G and AI-driven enterprise solutions are accelerating, with Verizon reporting 10% growth in enterprise revenues.
India:
- Bharti Airtel & Indus Towers: Indus Towers expanded its portfolio to 200,000 sites by 2025, with a tenancy ratio of 2.2. Airtel is leveraging proceeds for 6G R&D and enterprise IoT solutions.
- Reliance Jio: Jio Platforms raised $2 Bn in 2024 from new tech investors, focusing on AI, quantum communication, and Web3 applications, valuing the entity at $120 Bn.
Impact on Balance Sheets
- Debt Reduction: Tower and fibre sales have reduced debt-to-EBITDA ratios by 0.5-1.0x for major telcos like Vodafone and Telefónica.
- CapEx Reduction: Serve Cos and Tech Cos now allocate 20-30% less CapEx, with Infra Cos and Net Cos absorbing network build costs.
- Free Cash Flow: Improved by 15-25% due to lower CapEx and interest expenses.
- Valuations: Sum-of-the-parts valuations continue to outperform integrated models, with InfraCos commanding 15-20x EBITDA multiples.
- Strategic Flexibility: Enhanced cash flows enable M&A, 6G investments, and digital service expansion.
Conclusion
The decentralisation model remains a critical strategy for telcos navigating the digital age. By unbundling into Infra Co, Net Co, Serve Co, and Tech Co entities, operators can unlock value, enhance agility, and drive innovation. Recent trends, including 6G trials, AI integration, and Envirionmental, Social and Governance (ESG) focused infrastructure, underscore the model’s relevance. However, success depends on strategic execution, talent acquisition, and adapting to evolving market and regulatory dynamics.
To know more about the Australian Telecommunications Industry and its Evolution, please refer to my book titled Australia's NBN Debacle.
Note on Broader Industry Spin-off Trends (Beyond Telecom)
The trend of corporate spin-offs, driven by the desire to unlock hidden value, streamline operations, and empower business units to pursue independent strategies, is not exclusive to the telecommunications sector. This approach is a universal corporate strategy for value creation, applicable across diverse industries:
- MTN Group: The African telecom giant is considering spinning off its highly successful Mobile Money (MoMo) platform. This move aims to unlock a higher valuation for MoMo as a fintech company, provide strategic clarity for MTN's core telecom business, improve capital allocation, and ensure better alignment with fintech regulations. This illustrates a telco diversifying into a "fintech-co" model.
- Intel: The technology giant is spinning off its Network and Edge Group (NEX) into an independent business unit. This decision reflects Intel's broader strategy to divest non-core operations that compress profit margins and sharpen its focus on strategic growth areas like x86 and AI. This is an example of a tech company applying similar disaggregation principles.
Note on AI's Impact Across the Decentralised Telco Model
The integration of Artificial Intelligence (AI) is rapidly reshaping telecommunications, driving new services, operational models, and investment opportunities. Within the decentralised telco model – comprising Infra Co, Net Co, Serve Co, and Tech Co. AI presents distinct yet interconnected avenues for growth and transformation.
1. Infra Co: The AI Connectivity and Infrastructure Provider
- Optical Network Expansion (Low Risk): Expanding fibre networks to meet AI's high-bandwidth, low-latency demands. This directly strengthens their primary connectivity offering.
- Optimising Existing Layer 1-2-3 Networks (Medium Risk): Using AI for traffic management, predictive maintenance, and fault detection. Integration complexity introduces medium risk despite core benefits.
- Hosting AI Workloads on Telco DCs and Edge (Medium Risk): Providing compute and storage for AI applications at the network edge. Leverages existing assets, but AI workload requirements create new challenges.
2. Net Co: The Active Network & Platform
- AI-RAN (Medium Risk): AI for cell optimisation, energy efficiency, and spectrum sharing. Critical investment with integration complexity risks.
- NaaS/SD-WAN for AI Workloads (Medium Risk): Network-as-a-Service solutions optimised for AI demands through dynamic slicing. Requires advanced software-defined capabilities.
- AI for Network Automation & Orchestration (Low Risk): Automated network provisioning and self-healing capabilities. High efficiency gains with established technology.
- Data Monetisation from Network Analytics (High Risk): Converting network data into valuable insights for third parties. Privacy and governance concerns create significant risk.
3. Serve Co: The Customer-Centric Service Provider
- B2B/B2C AI-enabled Services (Low Risk): AI chatbots, personalised marketing, proactive customer care, and digital channel optimisation. Directly impacts customer satisfaction and retention with mature AI tools.
- AI for Churn Prediction & Retention (Low Risk): AI models analyse customer data to identify at-risk customers for targeted retention strategies. Critical for maintaining revenue streams.
- Sales & Lead Qualification (Low Risk): AI prioritises leads, identifies cross-sell opportunities, and automates sales processes. Makes sales teams significantly more efficient.
- Market Research & Product Development (Medium Risk): AI analyses market data and customer feedback to identify trends and inform new product development. Enables strategic innovation with moderate complexity.
4. Tech Co: The AI Company
- NaaS/SD-WAN for AI Workloads (Medium Risk): Creating software-defined platforms optimised for AI traffic. Market adoption uncertainty creates moderate risk.
- GPUaaS/AIaaS (High Risk): Developing underlying AI platforms and orchestration systems. Intense competition in AI platform space.
- B2B/B2C AI-enabled Services (Medium Risk): Creating foundational AI technologies for Serve Co integration. Contributes to the overall service portfolio.
- AI Technology (High Risk): Deep R&D into AI data centres, chips, LLMs, and intelligent agents. High-risk, high-reward investments define future capabilities.
Strategic Benefits of Decentralisation for AI
- Specialised Expertise: Each entity builds AI teams tailored to their specific functions and requirements.
- Optimised Capital Allocation: Investment directed to AI opportunities aligned with each entity's core business and risk appetite.
- Faster Time-to-Market: Decentralised structure enables rapid AI solution development within respective domains.
- New Revenue Streams: AI enables AIaaS, GPUaaS, and specialised enterprise solutions beyond traditional connectivity.
- Operational Efficiency: AI drives efficiencies from predictive maintenance (Infra Co) to automated customer support (Serve Co).
Source and References: Seekingalpha, Stlpartners, McKinsey, BCG, Deloitte, Strategy & CO TMforum, Gartner, WSJ, Bloomberg, AFR, Nextplatform, Gemini, Chatgpt, Claude, my Blog
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